The EconomistNovember 28th 2020 China 37F
our decadesafter China emerged from Maoist isolation, mys-
tery surrounds some big questions about its rulers’ views of the
world. Start with a topical one: what are the true feelings of China’s
leader, President Xi Jinping, towards Western-style shareholder
capitalism, with its emphasis on free competition, transparency,
separation between ownership and management, and oversight
by impartial regulators and courts?
Listen to speeches aimed at foreign audiences, and China is an
example to the capitalist world. It is presented as a champion of
openness and fair play, defending free trade against populist na-
tionalists who have fantasies of turning back the forces of global-
isation. Yet at home Mr Xi spends as much time stressing national
self-reliance, urging Chinese firms, officials and scientists to end
their country’s dependence on foreign technologies.
Fresh confusion was caused when the government abruptly
suspended what was expected to be the largest stockmarket flota-
tion in history, early in November. That ipoby Ant, a financial-
technology giant, collapsed after its founder, Jack Ma, publicly
grumbled about cautious regulators and small-minded banks. In
China, many sensed a warning from the government that even bil-
lionaires must defer to the party. On November 12th Mr Xi sent an-
other message. He visited the eastern city of Nantong to hail a local
industrialist, Zhang Jian, as a patriotic entrepreneur whose life
story, from 1853-1926, should be studied by business bosses. Tour-
ing the mansion that Zhang called home, Mr Xi praised the schol-
ar-turned-businessman for building a manufacturing empire, as
well as founding schools and China’s first museum. When private
entrepreneurs get rich they should become wise and socially re-
sponsible, Mr Xi said. He instructed that the site become a base for
patriotic education.
It is worth listening whenever a secretive regime reveals what it
values. On a damp, grey morning this week that hunch took Cha-
guan to Zhang’s gloomy, allegedly “British-style” mansion in Nan-
tong, to retrace Mr Xi’s steps. Downstairs, he found a delegation of
Communist Party members from the Nantong city government.
They were filming their own visit for later study. In an antique-
filled room upstairs, a local man, Zhang Yuanxin, did not hesitate
when asked what lesson he took away from Mr Xi’s praise for patri-oticentrepreneurs. A lot of business types think only about mon-
ey, he explained. Now it is time for them to give back to society.
A retired engineer from a state-owned oil company, Wang
Yongjian, gazed at a bronze bust of the mansion’s owner. He noted
that Zhang had passed imperial examinations with such distinc-
tion that, in another age, he could have served alongside an emper-
or. But instead, watching China’s agonies in the late 19th century,
the scholar-official plunged into business. Mr Wang compared
Zhang to British inventors of the first steam engines and to Henry
Ford, a pioneering American carmaker.
In reality, Zhang created little that was really new. Instead he
imported and copied British looms, Dutch irrigation systems and
Japanese salt-making techniques, in a bid to fight off foreign com-
petitors. Revealingly, the exhibition in Nantong does not conceal
any of this. Displays trace the entrepreneur’s journey from schol-
ar-official, serene in mandarin’s robes, to indignant nationalist. A
diary entry records Zhang’s anger at a treaty, imposed on China
after its defeat in the first Sino-Japanese war, which allowed for-
eign firms to open manufacturing plants in the country. Zhang
vows to go into industry himself to save China. Another display
shows the steamships that he bought to end the shameful domina-
tion of Chinese inland waterways by foreign shipping companies.
The dizzying list of businesses founded by Zhang includes cotton
mills, steel mills, a bakery, a distillery and a bus company. Institu-
tions he founded include libraries, orphanages, a boy’s school
(motto: “Honesty, Loyalty, Independence, Hard Work”) and a
school for girls (motto: “Domesticity, Obedience, Thrift, Gentle-
ness”). The exhibition is strikingly incurious about the funding for
this empire, beyond faded photographs of supportive officials and
images of share certificates. Luckily, Zhang’s conglomerate has
been thoroughly studied by historians, among them William
Goetzmann and Elisabeth Köll. Their paper in 2005 for the Nation-
al Bureau of Economic Research, “The History of Corporate Own-
ership in China: State Patronage, Company Legislation, and the Is-
sue of Control”, describes a cautionary tale.Serve the state, and the state will keep competition at bay
Government officials asked Zhang to launch his business in 1895 as
a guandu shangban, or government-supervised, merchant-man-
aged enterprise. These firms were modelled on Qing dynasty ar-
rangements by which merchants were granted monopolies, for ex-
ample in salt-trading, in exchange for collecting taxes and making
donations to the emperor to pay for military expeditions or disas-
ter relief. Even after China passed a company law in 1904 and
Zhang’s conglomerate became a stockholding firm, he ran it as a
paternalist autocrat. His first company meeting, in 1907, saw mi-
nority shareholders protest that donations to build schools should
come from his own funds, not the firm’s profits. Think of your con-
sciences, Zhang loftily retorted, ignoring them.
Neither fully capitalist nor state-owned, Zhang’s business em-
pire was financed by equity capital but existed to serve the country.
That gives Zhang enduring appeal for China’s leaders. Long before
Mr Xi praised him, Mao Zedong called him one of four Chinese in-
dustrialists who should never be forgotten. Objectively, Zhang was
not such a successful capitalist. Having narrowly avoided bank-
ruptcy in 1922, he was removed two years later as the company’s
head by a consortium of banks. His first external audit had re-
vealed an opaque mess of transfers and loans to ailing subsidiar-
ies. Today, he is a model patriot. Modern Chinese entrepreneurs
may draw their own conclusions. 7Chaguan Patriotism before profit
The first lesson of doing business in China is that the state comes first